Polar Capital Technology Trust offers broad exposure to the technology sector

It’s been a bad year for tech stocks, which have fallen more than the broader market in 2022. The Dow Jones US Technology Index is down -29.7% year-to-date, while the Dow Jones Industrial Average is down -5.9% year-on-year. to date (considering technology is almost 20% of the Dow).

However, despite the decline in technology from quite staggering heights, the underlying trends driving society only support the growth of the technology sector relative to traditional industries and should outperform the broader market over the long term. Technology is changing the entire economy, and businesses, customers and governments are embracing change and adopting new technologies faster than at any time in history.

And with stock markets likely to remain volatile in the short-term, investors should not lose sight of the long-term trends that are driving growth in the technology sector for companies that can navigate these challenging times, and earnings are key from those companies that have reported to date according to AXA Investment Managers, many have exceeded expectations.

For this reason, it might be worth looking for funds that give an investor exposure to a broad portfolio of companies in order to benefit from underlying investment trends.

One of these funds is the Polar Capital Technology Trust plc [LON:PCT]managed by Ben Rogoff, who has managed the fund since 2006. Rogoff joined Polar Capital in 2003 and has 27 years of industry experience.

The fund is rated against the Dow Jones World Technology Index (total return, sterling-adjusted, net of relevant withholding taxes) but is not a tracker fund as Rogoff will look for uncorrelated companies and the portfolio’s performance will vary, at times significantly, from that benchmark performance. Rogoff said in the fund’s report, “Investments are selected for their potential shareholder returns, not based on technology for its own sake.”

Rogoff and his team conduct rigorous fundamental analysis and focus on quality of management; the identification of new growth markets; the globalization of major technology trends; and exploiting international valuation anomalies and sector volatility.

technology solutions

Rogoff explained, “Technology can be defined as the application of scientific knowledge to practical ends, and technology companies are defined accordingly. While this offers a very broad and dynamic investment universe, covering many different companies, the portfolio focuses on companies that use technology or develop and offer technological solutions as a core part of their business models.”

The Fund aims to maximize capital growth for shareholders by investing in a well diversified portfolio of technology stocks worldwide. Polar Capital Technology Trust invests in a portfolio consisting primarily of internationally listed equities, diversified across regions and sectors within the overall investment objective to reduce investment risk.

Rogoff continued, “This spans areas as diverse as information, media, communications, environment, healthcare, finance, e-commerce and renewable energy, as well as the more obvious applications such as computing and related industries. [We] have agreed on a number of parameters to ensure that investment risk is spread and diversified. [We] believe this provides the necessary flexibility for the [investment team] to pursue the investment objective in view of the dynamic and rapid changes in the technology sector while maintaining a diversification of investments.”

Still, financial results from technology companies are beginning to reflect the challenging macroeconomic and geopolitical environment, as fewer companies beat their previous sales and earnings guidance in the third quarter than in previous periods. Earnings are under pressure, but many tech names continue to deliver better-than-expected earnings. This indicates that management teams are taking a constructive approach to managing costs and protecting their margins.

Small caps outperform the giants

Rogoff commented in the last published fund report at the end of August: “The technology sector underperformed the broader market in August, with the Dow Jones World Technology Index down -0.8%. Large-cap technology stocks slightly underperformed their small- and mid-cap peers during the sell-off; the Russell 1000 Technology Index (large cap) and the Russell 2000 Technology Index (small cap) declined -1.4% and -1.1%, respectively.”

He continued, “However, there was a much wider dispersion of returns between technology subsectors: the Philadelphia Semiconductor Index (SOX) returned -5.4% (after staging a strong rebound earlier in the month from early July lows). experienced), while the NASDAQ Internet Index and Bloomberg Americas Software Index returned +2.6% and -1.5%, respectively.”

Rogoff said growth in the technology sector has held up reasonably well, but cautioned that software companies are finding they face more deal scrutiny, longer sales cycles and deal compression. He cautioned that the fund’s forecast for the remainder of the year is cautious given the ongoing macroeconomic certainty.

He also said that company updates filed over the summer led to more negative revisions and that the sector is facing a challenging environment — just like the rest of the economy. In the semiconductors and hardware subsectors, companies trimmed their forecasts as inventories were destocked, and the first signs of weakness in the data center subsector began to appear.

Traffic and industry

However, Rogoff noted that demand in the transportation and industrial sectors remained strong, but cautioned that national security concerns in AI and chip manufacturing meant manufacturers faced licensing and export control restrictions in the US due to their potential military applications are. The team believes the sector remains exceptionally well capitalized and has seen companies taking a closer look at their cost base as the economy moves from a time of ample capital and customer demand to a more constrained time on both fronts transforms. Rogoff said the surge in private equity deals suggests many multiples are already at reasonable levels, though he wants to see strategic M&A as confirmation.

The fund’s top 5 holdings at the end of August were:

Microsoft [NASDAQ:MSFT] 11.1%

Apple [NASDAQ:AAPL] 9.9%

alphabet [NASDAQ:GOOGL] 7.3%

modern micro devices [NASDAQ:AMD] 2.8%

Taiwan Semiconductor Manufacturing Company Limited [NYSE:TSM] 2.4%

The fund has £2.7 billion in assets under management and opened today (25th November) at 1,930 p.m. The fund has offered a year-to-date return of -29.3% and a one-year return of -27.8%, with the company’s shares priced at between 1,764p and 2,796p. The fund had outperformed its benchmark by 10% by the end of August.

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